Repricing – Financial Markets – Week 5

Japan Quantitative Easing (QE):

Although Japan has recently reported some inflation consistent with their stated objective, their Quantitative Easing (QE) has continued unbounded. When The Fed cut back QE in the US the amount of QE provided by the Bank of Japan (BOJ) and the European Central Bank (ECB) increased their QE in order to provide the same total QE to the global economy.

Now the ECB has indicated that they are going to start tapering back their QE effective the summer of 2018. Bank of Japan has not made any such statement. Assuming that they do not by themselves increase the QE in the global economy by an amount equal to what the ECB was doing, there will be a significant reduction in the liquidity available to the global economy. While ultimately healthy because some assets are bubbles (Bitcoin anyone?), the reduction in liquidity will be another source of re-pricing of assets.